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AKD Securities Limited – Off the Analyst’s Desk (November 24, 2022)

Karachi, November 24, 2022 (PPI-OT): MLCF: Analyst Briefing Takeaways

Maple Leaf Cement Factory Ltd organized its analyst briefing today to discuss FY22 results and company’s future outlook

To recall, MLCF posted PAT of PkR12.27bn (EPS: PkR3.3), down 42%YoY. Company GMs remained strong at 25% during the outgoing year vs. 21% in FY21.

Company’s coal mix is comprised of 70% Local (Darra) coal, 25% Afghan Coal and 5% alternative fuels. Average coal prices for the quarter were as follows: Afghan coal PkR47k/ton, local coal PkR30k/ton and alternative fuel (PkR16k/ton). Weighted average cost of coal stood at PkR33,550k/ton for the quarter.

Company’s current power mix is captive coal fired power plant (53%), WHR (32%), national grid (12%) and Solar generation (3%). Company’s power requirement stands at 73.34MW with average cost standing at PkR18.43/kwh for the period. To note, current cost of grid stands at ~PKR36/kwh.

Presently, total capacities in the North/South stand at 50.4/15.7mn tons, with capacity utilizations standing at 78%/52%, respectively. Assuming worst case scenario of dispatches falling by 8-10% during FY23, company expects capacity utilization on the country level to clock in at 54% (57%/43% in North/South).

Company’s capacity enhancement project i.e. Line 4 (2.15 mn tons) is expected to achieve COD in 2QFY23. Total cost for the said project stands at PkR21bn (PkR13.5bn bank borrowing).

Company’s high margins during the previous quarters are a product of efficient inventory management/sourcing and the plant’s ability to process local (Darra) coal at high volumes (70-75% of mix) as opposed to other players in the industry. The newer Line-4 also has the said ability to process using coals with higher Sulphur content (local coal/pet coke). Current, retention price for the company stands at PkR13.5k/ton or PKR675/bag.

Company expects no major pricing pressure on cements going forward if industry utilization stays above 50%. Management argued that costs of other components used in construction have increased 2-3 folds during the past year as compared to cement, which accounts for only 5-6% of total construction costs.

Company only uses pet coke to manufacture white cement. Contribution margins for the said segment currently stand at 40-42%.